FT Advisor reports record number of landlords leaving market

Buy-to-Let:

Research carried out by international research group BVA BDRC, a consumer insight consultancy headquartered in Paris, finds that a record number of landlords are planning to sell their rental properties in the next 12 months.

The BVA report cited by the FT finds that over a quarter (26 per cent) of UK residential landlords are planning to sell at least one property from their portfolio.

The report states that the number of landlords intent on selling is the highest level of planned sales the BVA had measured (since 2006).

Although of the 738 landlords polled in June 2019, just one in seven intended to purchase additional buy-to-let properties over the next 12 months, by far the largest proportion to-date were contemplating sales.

Financial viability was the most commonly cited reason for wanting to sell property, with taxation and an increased burden of legislation creating a “hassle verses return” imbalance.

Net profitability in buy-to-let is reported as having fallen for three successive quarters, this being the first decline since BVA started tracking in 2006.

Rental yield was a major factor in profitability falls, with the recorded yield of 5.5% in Q2, 2019, the lowest for nine years. HMO landlords were seeing the highest average yields, with their multiple occupancy and student housing the most profitable.

Landlords’ profitability has also been hit by tax and legislative changes, including an additional 3 per cent stamp duty surcharge introduced in April 2016, and a tightening of the lending rules on buy-to-let mortgages followed by a phased-in reduction of mortgage interest tax relief over four years.

UK Consumer organisation Which? has calculated that the average small-scale landlord’s income will take a 43% hit due to the cumulative effect of the changes.

One strategy now being used to reduce the impact of many of the changes, and one that favours portfolio landlords, is the purchasing of buy-to-let properties through limited companies. The method has become more than twice as popular as buying rental properties as a private individual.

The banning of all tenant fees now means that letting agents must pass on these costs to their landlords, and landlords fear that the proposed abolition of the Section 21 possession or the “no-fault eviction” process will make managing rentals more problematic.

Given all the difficulties though, agents are still seeing new purchases and with the right strategies industry experts are still predicting a healthy future for buy-to-let in what is still a multi-billion-pound industry in the UK.

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